This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

How Capital Markets Will React to FOMC News

NEW YORK (TheStreet) -- In my opinion, Federal Reserve policy failed as soon as the FOMC cut the federal funds rate below 3% on March 18, 2008, to 2.25%. It was Dec. 16, 2008, when the Fed cut this rate to 0%, where it could remain for years to come if Janet Yellen becomes the next Fed chairman in early 2014.

The Fed's quantitative easing programs began in late November 2008 when the Federal Reserve Open Market Trading Desk in New York began to purchase $600 billion in mortgage-backed securities. Two years later the Fed announced another round of purchases and this time it was $600 billion in longer-dated U.S. Treasuries by the end of second quarter of 2011. This second wave was dubbed QE2.

QE3 was announced on Sept. 13, 2012, and QE4 was announced on Dec. 12, 2012. QE3 is the purchase of $40 billion per month in mortgage-backed securities and QE4 added another $45 billion of longer-dated Treasuries per month. There has been talk that the Fed will begin to reduce these purchases following today's FOMC meeting. Some say yes, others say no, I say it doesn't matter as the program has failed in its objective, which is to lower mortgage rates.

Before QE3 and QE4 were implemented the yield on the Treasury 10-year note traded as low as 1.377% on July 25, 2012. The lowest point for this year is 1.612% set on May 1, just about the time when speculation began that the FOMC will likely taper securities purchases following today's FOMC meeting. The high yield in anticipation of tapering has been 3.007% set on Sept. 6. Instead of pushing mortgage rates lower as intended, the bond market became worried about future inflation that the massive QE's could create, and for this reason the combination of the QEs and the 0% federal funds rate has been a failed monetary policy.

Continue to trade the bond market just like a stock using iShares 20+ Year Treasury Bond (TLT) ($103.71). The Treasury ETF remains below its 50-day simple moving average at $105.67 after setting a multi-year low at $102.11 on Aug. 21. The weekly chart shows an oversold condition with the five-week modified moving average at $105.25 and the 200-week SMA at $107.77. This week's value level is $100.96 with a monthly pivot at $105.75. My semiannual value level lags at $92.32 with annual risky levels at $116.26 and $120.42.

Stock quotes in this article: TLT, GLD, XLE, DIA, QQQ, SPY 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,489.53 -12.12 -0.07%
S&P 500 1,877.06 +1.67 0.09%
NASDAQ 4,142.6960 +15.7290 0.38%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs